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You don’t have to be a doctor to have a stake in your clients’ mental health

It’s never an easy topic to bring up and one that most financial advisors would probably say has little, if anything, to do with them.

Any client who shows signs of weakening mental capacities, though, is very much an advisor’s concern, says Richard Peterson, managing partner at San Francisco-based MarketPsych, just in case they ever have to face legal repercussions for having sold investment products to clients with dementia or some form of cognitive mental impairment.

In February of this year, an independent insurance agent who sold an indexed annuity to a woman in her 80s was actually sentenced to 90 days in jail on a felony theft conviction. The sentencing was unexpected, Peterson says, and it’s definitely not something that’s going to be an everyday occurrence.

All the same, financial advisors are having to expand their roles evermore and, through the application of behavioral finance principles, are becoming more deeply involved with their clients. It is part of their duty to be attuned to changes in their clients’ behavior, particularly when it comes to clients that they have known for many years, Peterson says, because changes in behavior can have a serious impact upon life savings and financial planning.

“With the baby boomers now aging, every advisor has clients that will show evidence of some kind of mild to serious cognitive impairment,” Peterson says. “Being aware of changes in their behavior and assessing their cognitive capability is another obligation now for an advisor who is on the front line.”

Most advisors, of course, are not psychiatrists or doctors, and they have not been trained to recognize the signs of cognitive impairment. That’s why MarketPsych has come up with the MEMRI checklist, a quick, easy-to-use tool for advisors who sense subtle changes in their clients’ behavior but are not sure how to assess it.

“The checklist is a simple tool. Let’s say it’s a value-add for financial advisors that helps them look more professional, can help clear them of any potential liability and enables them to provide that much more service to their clients,” Peterson says.

According to MarketPsych, advisors should run down the MEMRI checklist once a year for their clients over the age of 65, in order to assess them for: Memory loss (forgetfulness and inability to retain new information); Emotional liability (inappropriate risk taking that’s otherwise uncharacteristic); Math lost (difficulties in doing simple calculations); Recognition lacking (confusion with simple directions, missing scheduled appointments, looking unkempt) and Insight limited (irrationally dismissive of suggestions that something might be affecting the client).

Peterson recommends advisors keep thorough documentation of the checklist findings. Most importantly, though, he recommends subtlety, particularly with clients that an advisor may have had for a number of years and with whom he or she already has a deep enough relationship, since the issue of cognitive impairment is such a sensitive one.

“Making a family member aware of the findings on the MEMRI checklist is also an important part of the process because it shows you really care about your client and creates goodwill,” Peterson says.

The five-point mnemonic can help advisors speed the process of diagnosing cognitive impairment by referring them to a specialist. Ultimately, they’ll be able to speed the process of diagnosis and management, all the while helping clients avoid any major financial pitfalls that they could be subject to.

Peterson – who is also a physician -- has talked with several organizations, including the CFA Institute, about the merits of promoting MEMRI as another tool in an advisor’s behavioral finance toolbox, and MarketPsych is looking to set up training programs to make advisors more aware of the nitty-gritties of cognitive impairment.

“The advisor role is continually evolving and taking on new dimensions,” Peterson says. “MEMRI is an awareness tool that advisors can greatly benefit from and that can greatly enhance their practice.”

Peterson is board-certified in psychiatry by the American Board of Psychiatry and Neurology. A registered investment advisor in California, he’s been at the forefront of cutting-edge research to bring neuroscience into the field of behavioral finance.